Portfolio Builder
Locked6 lessons remaining to earn this badge.
A portfolio is more than a list of things you own — it is a structure with rules. This level covers the decisions that most influence long-term outcomes: how a portfolio is put together, how its pieces relate to each other, how large any one piece is allowed to grow, and how it is kept aligned with a plan you set while calm.
What you'll learn
- Explain why broad structural decisions typically outweigh individual selection in long-term outcomes
- Describe diversification and its limits, including what it cannot protect against
- Explain correlation in plain terms and why holdings that move together offer less protection than they appear to
- Describe how position size determines how much a single mistake can cost a portfolio
- Distinguish rebalancing as risk control from market timing, and describe how a written investment policy protects decisions from moods
- 5.1
Asset Allocation
Structure, cost and consistency matter more than individual selection.
7 min - 5.2
Diversification
Diversification spreads company-specific risk without removing market risk.
6 min - 5.3
Correlation
Correlation measures whether two holdings tend to move together, and it changes over time.
6 min - 5.4
Position Sizing
Concentration happens quietly, usually through success rather than through a decision.
6 min - 5.5
Rebalancing
Rebalancing resets a portfolio back to its target weights after markets move it away from them.
6 min - 5.6
Building an Investment Policy
A personal investment policy writes down your rules in advance so a bad mood cannot rewrite them later.
7 min
Optional supplemental lessons
Extra reading for this level. Optional — they don't count toward this badge or the certificate.
- Understanding Drawdowns · after Lesson 5.2 · 6 min
What a drawdown is and how long recoveries have taken — with no guarantee of recovery.
- What Happens When Markets Crash · after Lesson 5.5 · 7 min
How past market crashes unfolded and what investors faced.
Worked case · Hypothetical example
A short investment policy and rebalancing with cash
Skill: Writing a policy; measuring drift; rebalancing with contributions and costs
Hypothetical portfolio with a 60% stock / 40% bond target and a ±5-point band.
| Stocks | $7,000 |
|---|---|
| Bonds | $3,000 |
| Monthly contribution | $500 |
| Trading cost | $10 flat per trade, buy or sell (assumed); no spread, no other fees |
Worked through
- Drift: Stocks are 70%, 10 points over target, outside the ±5 band.
- Cash-only fix: To reach 60% without selling, total must be $7,000 ÷ 0.60 ≈ $11,667, so ≈ $1,667 into bonds (about 3–4 months of contributions). Assumes the $500 arrives as cash with no trading cost on the bond purchase beyond what your account charges.
- Selling fix — leg 1: Sell $1,000 of stocks and pay the $10 fee: stocks $6,000, cash $990. Selling alone leaves cash, so the mix is not yet 60/40.
- Selling fix — leg 2: Buy bonds with the cash, keeping $10 for the second fee: bonds $3,000 + $980 = $3,980, cash $0.
- Reconcile: $6,000 + $3,980 = $9,980 = $10,000 − $20 in fees. Stocks $6,000 ÷ $9,980 ≈ 60.1%, bonds ≈ 39.9%, inside the band.
- Compare: Selling fixes it now for $20 in fees plus any tax on the gain; directing new cash is slower but avoids both.
Limitation: Taxes on selling depend on the account type and are not included; prices are assumed not to move between the two trades; rebalancing does not guarantee better results.
Your turn
Check yourself against the rubric
- Policy states target, band and review trigger
- ≈ $3,333 ($8,000 ÷ 0.60 − $10,000)
- Considers cost/tax of selling vs using contributions
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